The first
time I considered buying Hutchison Port Holdings Trust was about two years ago.

The only
thing that stopped me was their capital expenditure announcement.

The 3 years
capital expenditure for building deep sea berths in Yantai means less money for
the investors. Since Hutchinson Port
Holdings Trust is a dividend play, cash is king.

Most cash
towards expansion means less cash for the shareholders.

That was
the time when I decided to wait till the capital expenditure program ended.

However,
Hutchinson Port Holdings Trust announced earlier this year that it will pay
down its debt from 2017.

The debt repayment plan means that it will repay HK$1bn every
year from 2017.

In the long term, the capital expenditure and debt repayment
are good for the investors, since that will lead to potentially higher earnings,
and lower expenses (in term of interest paid to the banks).

However, in the short term, that means less cash to give out
to the investors.

I still like Hutchinson Port Holdings Trust, so now I have
to take all the available information, and compute my buying price.

I assume that the earnings for the next few years will be
just as bad, since the global economy is not likely to improve so much that the
earnings will skyrocket.

I assume that the economy is not going to worsen much
too. Since US is recovering, the rest of
the world is not likely to get into a deep recession.

The dividend paid for the period Jan 16 to Jun 16 is HK 14
cents. The amount paid to all investors
is HK$1,219.6 million.

The dividend paid for the period July 15 to Dec 15 is HK
18.7 cents. The amount paid out is HK$1,629
million.

I will take the full 12 months as a basis. Out of the earnings from July 15 to Jun 16,
a total of HK2,848.6 million is paid out as dividend, and each share gets a
dividend of HK 32.7 cents.

I assume conservatively that in 2017, a billion HK dollar is
used to repay the debt and the amount remains for investors is HK1,848.6
million.

That means dividend per share is just HK 21 cents.

At the current exchange rate of HK 1 dollar converts to S$0.177,
the dividend in Singapore currency is just S$0.037.

I usually expect a 5% dividend yield, so based on the expected
dividend of S$0.037, my buying price is S$0.74.

However, in this case, I will have to add in a margin of
safety to account for the exchange rate risk, and the risk of another labor
strike.

I will only buy when the dividend yield is 7%. That brings my buying price to S$0.52.

The current share price in Singapore currency is S$0.595.

I doubt I will to wait very long. Hutchinson Port Holdings Trust has proven to
be a falling knife since its IPO.

Even though it is part of the STI components, and those who
invest in STI ETF will have shares in it, I do not think the share price will increase.

It will probably fall all the way to 50 cents within a year.

The only certainty is that the share price will not reach
0. No matter how bad the business is,
the port is still making money, and the economy of Hong Kong and Shenzhen
cannot do without the ports.

I will have to think about the selling price before I buy the
shares.

This part is harder since the share price is unlikely to see
an increase within 2 years. I doubt I
will see a huge capital gain even if I hold for 5 years.

Hutchinson Port Holdings Trust will be a pure dividend play
for me, if and when I manage to get it below 52 cents (Singapore currency).